We are heading for a crisis that will be exponentially worse than 2008. The global Central Banks have literally bet the financial system that their theories will work. They haven’t.
Every other time the markets has broken down in the last six years, a Fed President appeared to talk about some new policy to prop the markets up. NOT THIS TIME.
The Fed could potentially go “nuclear” with a massive QE program if the markets fall far enough, but this would only accelerate the pace at which investors lose confidence in Central Banks’ abilities to rein in the carnage.
If the investment world has reached the point at which it no longer has faith in Central Banks’ abilities to prop up the markets, then THE major crisis of our lifetimes is here.
This will not be a one-off event. With the Fed and other Central banks now leveraged well above 50-to-1, even those entities that were backstopping an insolvent financial system are themselves insolvent.
The American dream has become perverted into the equivalent of hoping to pick a winning economic lottery ticket: hoping that you somehow will become one of the lucky 0.00001% who strike it big and make millions upon millions of Dollars.
This is precisely what has happened in Spain during the 2012 banking crisis. Since then it’s also happened in Cyprus, Greece…and it is now perfectly legal in the US courtesy of a clause in the Dodd-Frank bill.
The official GDP numbers do not reflect this because they are too politically important to do so. But the hard data shows something nasty is coming down the pike.
The bond bubble is now well over $199 trillion in size. And if we were to include credit instruments that trade based on bonds, we’re well north of $600 trillion.
The significance of these developments cannot be overstated. Central Banks will be increasingly acting against one another going forward. There will more surprises and more volatility across the board. Eventually it will culminate in a Crash that will make 2008 look like a picnic.
We are heading for a crisis that will be exponentially worse than 2008. The global Central Banks have literally bet the financial system that their theories will work. They haven’t.
In simple terms, Greece from 2003-2010 was an economic boom driven by incomes, which were in turn driven by cheap debt NOT real organic growth. Thus, the collapse in GDP was yet another case of “price discovery” in which asset prices fall to economic realities…
